HSBC says that risk assets can go up if you focus on policy instead of politics.

It’s possible that investors’ hopes that Trump’s choice of Scott Bessent as U.S. Treasury secretary would mean a less extreme economic plan have already been dashed.

Markets are shaking because Trump said late Monday that he would put 25% tariffs on imports from Mexico and Canada and another 10% on imports from China.

Futures for U.S. stock indexes went down, and Treasury yields are slowly going up after dropping sharply on Monday after the Bessent news. Europe’s SXXP fell by 0.34 percent, and Asia’s ADOW fell by 0.57 percent. It makes sense that the Mexican peso (USDMXN 1.49%, down 1.4%) and the Canadian dollar (USDCAD 0.74%, down 0.9%) are losing the most.

But some experts are telling people to stay calm, saying that Trump’s announcement is just the start of the negotiation process.

Andrew Bishop, global head of policy research at Signum Global Advisors, says, “If Trump wanted to put such a tariff in place instead of trying to get Mexico to give in, he would not have announced it two months in advance. This gives Mexico time to follow through on his threats.”

It’s possible that Trump’s promise to raise tariffs was also meant to manage Wall Street’s expectations: “One hypothesis for tonight’s [Monday’s] Truth Social posting is that Trump is trying to counterbalance the “risk” to his image of appearing too “dovish” in the wake of his nomination of financial posterchild Scott Bessent and the news cycles that followed.”

A group of analysts at HSBC Global Research, led by chief multi-asset strategist Max Kettner, go even further and say that investors worry too much about short-term plans in Washington.

People who work with Kettner say they have been asked a lot of questions since the election, like how will tariffs affect prices, what are the chances of immigration to the U.S., and who will be on Trump’s team.

But they wonder if these are really going to be what moves markets in the next six to twelve months. The HSBC team says, “Day-to-day politics may be what drives things in the short term, but to us, it’s the policy setup that is much more important.”

“And here, we think that continued Fed rate cuts, a U.S. economy that’s still growing almost twice as fast as it could, low near-term top-down earnings expectations, less uncertainty about the election, and either more or the same amount of fiscal stimulus will all help risk assets in the coming months,” they say.

In fact, they think that the focus on politics is keeping people from getting too emotional or stuck in one place. “Right now, neither of our short-term sentiment indicators is flashing any red flags—they are both in neutral territory.” “Our overall contrarian sell signal is at 5%, and our overall contrarian buy signal is still at 8%,” the HSBC team wrote.

HSBC still likes Wall Street stocks because of “U.S. exceptionalism, solid activity, and the re-emergence of the Fed put.” On the other hand, they think it’s hard to go overweight on European stocks because the core economies of those countries are suffering so much.

Since 95% of the S&P 500 companies have already announced their results for the third quarter of 2024, 75% have seen surprises in earnings per share that were positive. This means that overall earnings have grown by 5.9% year-over-year. It’s important to note that HSBC predicts revenue growth to more than double to 12% in the fourth quarter.

They like U.S. banks the most and are still optimistic about tech and the mega caps, even though they’ve had a great year. “Overall, we expect a “mini-reflation” in trade, and we are also more optimistic about industrials,” says HSBC.

Stock Markets

U.S. stock indices SPX 0.24%, DJIA -0.40%, and COMP 0.49% are all over the place shortly after the starting bell, as benchmark Treasury yields TMUBMUSD10Y 4.406 % rise. The dollar index DXY 0.07% is slightly higher, oil prices CL.1 1.29% rise, and gold GC00 0.24% is trading around $2,618 an ounce.